I invested 15000 in a small business in 2016 but only made 6880 that year - can i deduct the rest somewhere?

[Phillip1 · Accepted solution]

It depends on the nature of the investment.

The 15,000 dollars is your original basis in the small business investment. 

If this was a loan and the 6,880 dollars represents principal that you were paid back, your basis is still 8,120 dollars. If that might still be repaid, you should not deduct the remainder as this keeps the repaid principal from being taxable income. However, if the debt is worthless, you either have business or nonbusiness bad debts. Business bad debts are fully deductible on a business return like schedule C. Non-business bad debts are treated as capital losses.

If the money was for a share of a small business, the 15,000 dollars is your basis and (likely) remains your basis. The money you received is a distribution. Basis in ownership increases with income and contributions, reduces with distributions and losses. If the money you received was your share of income for the year, your basis would be unchanged (Basis increases by 6,880 of income, and decreases by 6,880 dollars with the distribution) You would not deduct your basis (as a capital loss) unless you sell your share for a loss, or the company goes out of business leaving your shares worthless.